The City was last night betting on a bid battle for Biffa after the waste disposal group revealed it had accepted a £1.2bn offer from a private equity consortium but other potential bidders were going through its books.

The Biffa board is backing a 350p-a-share cash offer from a bid vehicle controlled by the private equity firms Montagu Funds and Global Infrastructure Partners and the HBOS subsidiary UCIL.

The prospect of a counterbidder pushed the shares up 41.5p to 369.5p. Biffa has not disclosed the identity of its other suitors but Guy Hands's Terra Firma and the French utility group Suez are among those seen as possible contenders.

The offer values Biffa at 23.5 times expected earnings for the current financial year but Seymour Pierce analyst Kevin Lapwood said the bid "may appear generous, but we maintain it is not enough. There are still several infrastructure investors that would pay more and we still believe that a price closer to 400p is more realistic."

Biffa was spun out of water company Severn Trent two years ago with a market value of about £1bn. It is one of the leading waste disposal companies in Britain, with 450 national customers and 75,000 local customers in its industrial and commercial collection operation. It also operates 33 landfill sites and 42 treatment and recycling centres. In its most recent financial year Biffa made an operating profit of just over £90m on revenues of £742m.

Britain is one of the biggest users of landfill in Europe but a combination of legislation and higher taxation is limiting the capacity to bury waste and making it more expensive.

The pressure on landfill is changing the industry from a mainly logistical operation where waste is collected and dumped to a more technology-based business that uses mechanical and biological techniques to recycle or recover waste and produce energy.

Local authorities are increasingly looking to the private sector to handle household waste through contracts that can generate hundreds of millions of pounds of revenue long-term.

Analysts believe the changing nature of the industry is making it more attractive to private equity and infrastructure investors.

Yesterday's announcement is the latest twist in an already complex saga. In November Biffa said it had rebuffed an indicative proposal from Montagu and HgCapital. That was followed by a revised proposal of 350p a share which persuaded Biffa to open its books.

Subsequently Montagu came back to say it was still interested in a possible offer, this time working with GIP. Since then Biffa has received a number of other approaches.

Yesterday the company said that it had not received any proposals from third parties and there was no certainty a rival bid would be forthcoming. "On that basis the board of Biffa has decided to recommend the acquisition." If a successful rival bid does emerge Biffa will have to pay a £12m break fee.

Biffa's chairman, Bob Davies, said the offer "recognises the considerable value inherent in our market position and integrated business model, and I believe their investment plans will help Biffa maximise the opportunities presented by changing legislation to deliver growth in the medium term".

Montagu's Jason Gatenby said his own fund and GIP were both long-term investors. "We look forward to building on Biffa's leading position across all areas of the waste-management chain."

Matthew Harris from GIP said the acquisition of Biffa would represent "an attractive opportunity ... to invest in the UK waste management industry and establish our presence in this key infrastructure sector".

Tips for rubbish

Getting rid of rubbish is a challenging and increasingly expensive business. Traditionally Britain has used landfill - holes often left by mining - but a combination of legislation and taxation is putting pressure on waste management authorities to find other means. Incineration is a traditional alternative, with modern plants able to produce energy from rubbish, but critics argue it can be wasteful. Other options include anaerobic digestion, where micro-organisms digest organic waste to produce methane, which can be used as fuel to generate electricity; mechanical biologicaltreatments, which separate recyclable materials and split the remainder into fuel and soil improvers; and gasification. This produces a gas containing hydrogen, oxygen and methane, which can be used for electricity.